Get ready to save more towards your pension

Category:
Pensions
04/05/2018

We are now just one month away from an increase to the minimum auto-enrolment contribution, which will see employees save at least 3% (up from 1%) of their salary in their workplace pension, while employers will have to contribute a minimum of 2% (up from 1%). So, don't panic if April's payslip looks a bit thinner, and think twice before you opt out of automatic enrolment.

Most employees who work in the UK, are 22 or older and earn at least £10,000 per year will by now have been automatically enrolled in their workplace's pension scheme – unless they've specifically opted out of it, or their work already had a scheme in place. This is meant to help everyone who's eligible to save for their own retirement, amid worries that many could otherwise find themselves unable to support themselves in later life.

To this end, this type of pension-saving not only makes it easier to set funds aside, but also adds funds from your employer and benefits from tax relief. "Even the highest interest savings accounts on the high street can't beat workplace saving," pointed out Kate Smith, head of pensions at Aegon.

Government data suggests that less than 10% of eligible employees have currently chosen to opt out, which means the vast majority recognise the unique benefits of savings towards retirement, with some help from their employer. However, Kate warned that "as the contribution rate increases, it's important the value of long-term saving and free money workers get in return for their contribution isn't overlooked."

Indeed, only the 25% yearly Government bonus available on the lifetime ISA can rival the retirement savings that are offered through automatic enrolment – which is why these ISAs may be a good bet for self-employed people who are missing out on the benefits of a workplace pension. Isn't paying £45 per month (based on the average UK wage of £28,600) towards your future worth one less takeaway?

What next?

If you're already auto-enrolled, you don't need to do anything. Your contribution will increase automatically from 6 April, and increase again to at least 5% at the same time next year.

If your employer still hasn't set up a workplace pension scheme, ask about it – they should get one soon.

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